PHILADELPHIA — Rydex Investments has been in discussions with some suitors about being acquired, according to industry sources.
Two executives, who asked not to be identified, confirmed that they worked on behalf of their respective firms and were involved in talks to acquire Rydex.
Both executives said the companies had pulled out of those talks within the last few months. One of the executives said the company he represents pulled out because the asking price for Rydex — 10 times earnings before interest, taxes, depreciation and amortization — was too high.
Rockville, Md.-based Rydex is trying to get the best price it can by leveraging its position as a top provider of exchange traded funds, he said.
Meanwhile, other companies are still interested, sources said.
Held in ‘
trust’
Rydex was the sixth-largest ETF provider by assets at the end of April, with $4.86 billion in assets spread across 25 ETFs, according to
State Street Global Advisors of Boston.
Rydex is owned by a
trust controlled by the family of founder Albert “Skip” Viragh Jr. Ownership passed to them after Mr. Viragh died in 2003.
Rydex officials would neither confirm nor deny that talks of a sale are taking place.
“We’re a privately held firm,” said Dawn Kahler, a spokeswoman. “We can’t talk about that.”
Some financial advisers who do business with Rydex, however, said the company has been hinting at a possible sale for some time.
To that point, comments made by Rydex CEO Carl G. Verboncoeur at a conference in Orlando, Fla., last month left attendee Paul Schatz, president of Heritage Capital LLC of Woodbridge, Conn., with the distinct impression that a sale is in the works. The conference was hosted by the Littleton, Colo.-based National Association of Active Investment Managers Inc.
Discussing the rumors that Rydex is for sale, Mr. Verboncoeur said that because Rydex is the sole asset in the
trust controlled by Mr. Viragh’s family, the family wants to diversify their investment holdings, according to several people who attended the meeting.
Mr. Schatz interpreted Mr. Verboncoeur’s remarks to mean that a deal is definitely going to be done this year as long as the successor agrees to take care of the current Rydex employees.
Rydex officials wouldn’t confirm the comments made by Mr. Verboncoeur at the conference.
Meanwhile, the identity of potential acquirers is unclear.
At one point,
Invesco PLC of London, formerly Amvescap PLC, expressed interest in buying Rydex, according to one source familiar with the negotiations, who asked not to be identified.
The London firm last year purchased ETF producer PowerShares Capital Management LLC of Wheaton, Ill., for what many industry observers believe was an inflated price.
It is company policy not to comment on rumor, Ivy McLemore, a spokesman for AIM Investments, a Houston-based subsidiary of
Invesco, said about potential interest in Rydex. AIM also is the distributor of the PowerShares ETFs.
Because
Invesco already owns PowerShares, however, and there would be some overlap between their products and Rydex, it may not make a great deal of sense for
Invesco to buy Rydex, said Geoff Bobroff, a fund industry consultant based in East Greenwich, R.I.
That is not to say that the London firm — which had $471.2 billion in assets under management as of March 31 — isn’t the right kind of company to make a play for Rydex, he said.
“I think it’s got to be an organization of some size to handle the potential price,” Mr. Bobroff said.
Some industry experts are surprised that it has taken this long for Rydex to wind up on the block.
“Anytime a business is run by a
trust, it’s a challenge keeping professionals,” said Liz Nesvold, managing director of New York-based Cambridge International Partners Inc.
Trust owners aren’t usually very engaged in their company, she said. It can be a problem, because in such a situation, employees aren’t necessarily endowed with a sense of ownership, which can leave companies feeling directionless, Ms. Nesvold said.
Several financial advisers, however, said they feel that Rydex is doing just fine.
Cause for angst
In fact, the idea that it could be sold to another company is a source of concern for some.
“I am a huge fan [of Rydex], but a sale or a deal would make me worry,” Mr. Schatz said. “Their customer service is unparalleled. I fear a new owner wouldn’t devote what they do to customer service.”
Such concerns are legitimate, said Eric Leake, a vice president and portfolio manager with Anchor Capital Management Group Inc. in Irvine, Calif.
“I think there is always concern anytime there is an ownership change,” said Mr. Leake, who also attended the NAAIM conference at which Rydex’s chief executive spoke.
But Mr. Leake, who is also a member of the Rydex advisory board, said he’s confident that Rydex won’t tarnish the memory of its late founder by “dumping it off onto an organization that doesn’t share” its commitment to it clients.
“I’m looking forward to [Rydex’s] selecting the right partner,” he said.
